Government launches Help-to-Buy three months early

Banks accounting for about a third of the mortgage market will start offering
taxpayer-subsidised mortgages next week after the Government brought forward
the launch date of its controversial Help-to-Buy scheme by three months.

The Prime Minister has brought forward the Help-to-Buy scheme by three monthsPhoto: ANDREW WINNING/WPA POOL

On the eve of the Conservative party conference in Manchester, David Cameron revealed that the state-backed lenders, Royal Bank of Scotland and Lloyds Banking Group, have signed up to the scheme and the launch date has been brought forward from January.

Help-to-Buy will initially be available under the Nat West, RBS and Halifax brands. A Tory spokesman said that other banks are expected to take part over time.

The scheme will help people buy a home worth up to £600,000 with just a 5pc deposit. The Government will guarantee the next 15pc of the loan for a fee, reducing the banks’ potential losses so they can offer cheaper mortgages to higher-risk customers who are currently locked out of the market.

The deal will be available for £12bn of guarantees on up to £130bn of mortgages and remain open for three years.

Critics have warned that the guarantees could inflate a dangerous housing bubble at a time when the property market is already showing signs of recovery. Vince Cable, the Business Secretary, has questioned “whether it should come into effect in light of the changing market conditions”, adding: “We don’t want a new bubble.”

Despite the Chancellor’s attempts to allay concerns last week by giving the Bank of England new powers to intervene before a looming boom, the divisions appear as deep as ever. Mr Cable said yesterday: “My views on this subject are very well known and haven’t changed.”

Insurers and real estate groups also raised questions about the scheme as the details have yet to be unveiled. The Government will charge the banks a fee for the insurance, which is expected to be more expensive the smaller the borrowers’ deposit. However, offsetting that, lenders may get preferential treatment on the capital they must hold against a Help-to-Buy loan.

Angel Mas, European president of mortgage insurance provider Genworth, said: “It is very surprising that the scheme is being launched without clarity on key points such as the fee and the way in which capital relief will work.”

Adam Challis, head of research at property service group Jones Lang LaSalle, said: “We are increasingly concerned with stimulus-driven short-term price pressure that will exacerbate affordability issues.”

Speaking on BBC One’s The Andrew Marr Show, David Cameron rejected suggestions of a boom. “Talk of a housing bubble to people here in Manchester or Salford, and they would literally laugh in your face,” he said. House prices, excluding London and the South East, have risen by just 0.8pc over the past 12 months, according to the Office for National Statistics.

Mr Cameron added two people earning £25,000 each who want to buy a £200,000 home need currently to save a £40,000 deposit on average. “If we don’t do this, it will only be people with rich parents who can get on the housing ladder,” he said. ONS data shows that, last year, the average deposit put down by a first time buyer was 23pc, compared with 16.4pc in 2006 and 12.4pc in 1988.

Alistair Elliot, senior partner at property advisers Knight Frank, said: “Outside of London and the South East, there is no real prospect of a bubble at all.”

Ross McEwan, incoming chief executive of RBS, said: “Despite the economy recovering, we know many families are finding it tough to get a mortgage deposit together.

“We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows. That’s why RBS fully support the Help to Buy mortgage guarantee scheme and we welcome news that it will be launched soon.”

The bank said it would be “offering a range of competitive 95pc mortgages to first and next time buyers in the UK” and that it aimed “to help 25,500 first time and next time buyers through the scheme”.

The Treasury will set out the details of the scheme next week – including the insurance fees. A smaller government loan scheme for people buying newly built properties began in April.

Separate research from Hometrack found further signs of a “burgeoning recovery” spreading across the country as house prices rose 0.5pc in between August and September – the he highest monthly increase seen since May 2007. More than two-fifths of property markets registered higher prices across England and Wales, the broadest upturn since February 2007.